In the UK, the tax system is structured around both residence and domicile. Non-domicile residents, commonly referred to as ‘non-doms’, are individuals residing in the UK but declaring their permanent home elsewhere.
These non-doms are taxed on their UK earnings. However, they might be exempt from tax on income originating from abroad. If their foreign income or gains do not exceed £2,000 and aren’t deposited into a UK bank, they aren’t subjected to UK tax.
However, surpassing this threshold or transferring any funds to the UK mandates a declaration to HM Revenue & Customs (HMRC) via a self-assessment.
Such income is subjected to UK tax rates, with potential provisions for tax reclaims. Alternatively, they can opt for the remittance basis, where UK tax is only levied on the income and gains brought into the country.
This choice, however, means forgoing tax-free allowances for Income Tax and Capital Gains Tax (CGT).
Non-doms who’ve resided in the UK for specific durations face an annual charge:
- £30,000 for those in the UK for at least seven out of the past nine tax years.
- £60,000 for those here for at least 12 out of the previous 14 years.
Recent data from HMRC reveals that non-domiciled taxpayers contributed a record £8.5 billion in 2021-22.
This figure is the highest since the rule changes of 2017, even though the number of non-doms has decreased compared to pre-pandemic levels.
The UK Government’s 2017 reforms led to many losing their permanent non-dom status, reclassifying them based on their UK residency duration.
Those deemed domiciled (residing in the UK for at least 15 of the past 20 years) are taxed on all income and capital gains.
Together, non-doms and those deemed domiciled contributed a staggering £12.4 billion in the 2021-22 tax year, marking the highest level since records started in 2008. The Treasury has emphasised the significant contributions of non-doms, stating their taxes and investments aid public services. They aim for the UK to be a prime destination, attracting skilled individuals for work and business.
However, there’s a debate on the fairness of the non-dom system. While some argue that it’s an outdated tax perk giving undue advantages to a select few, others, including Chancellor Jeremy Hunt, warn against potential repercussions on foreign investment.
The rising contributions of non-doms indicate their significant role in the UK economy. Their increasing tax payments also hint at the broader economic challenges, including the cost-of-living crisis, affecting all residents.
As many non-doms remit taxes to HMRC, it’s plausible that more are transferring funds from abroad to cover these rising expenses.
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